On March 27, 2020, the Coronavirus Aid, Relief, and Economic Stability Act, known as the CARES Act, became law. It is the third piece of federal legislation related to the 2020 coronavirus pandemic and provides approximately $2 trillion in sweeping emergency measures to mitigate the resulting public health and economic crisis facing individuals, families, and businesses. The cornerstone of the CARES Act’s relief package for small businesses is the Paycheck Protection Program (PPP), under which the Small Business Administration (SBA) will guarantee up to $349 billion in small business loans.
Over the past few days, the PPP's application requirements have become more technical than originally anticipated.
Here are the latest 5 secrets you should know about the PPP:
Secret #1 - What information is needed to determine PPP eligibility?
Business must be operational as of February 15, 2020 and had employees for whom it paid salaries and payroll taxes, or a paid independent contractor. The dollar amount of the average monthly payroll costs will have to be verified by the lender.
Secret #2 - How do I calculate the total loan amount?
- For businesses operating between February 15, 2019 and June 30, 2019, the average eligible monthly payroll costs incurred during the 1-year period before the date on which the loan is made multiplied by 2.5 (represents months) – plus – the balance of any SBA disaster loan closed between January 31, 2020 and when this loan will be made, if applicable – OR – $10 million whichever is less.
- For a business not operating between February 15, 2019 and June 30, 2019, the average eligible monthly payroll costs incurred during the period between January 1, 2020 and February 29, 2020 multiplied by 2.5 (represents months) – plus – the balance of any SBA disaster loan closed between January 31, 2020 and when this loan will be made, if applicable – OR – $10 million whichever is less.
- In the case of an eligible seasonal employer, the average number of full-time employees per month employed during the period beginning on February 15, 2019 and ending on June 30, 2019. The average eligible monthly payroll cost multiplied by 2.5 (represents months) – plus – the balance of any SBA disaster loan closed between January 31, 2020 and when this loan will be made, if applicable – OR – $10 million whichever is less.
Secret #3 - What are considered to be "payroll costs?"
"Payroll costs" are:
- salaries/wages/commissions, or cash tips (capped at $100,000 on an annualized basis for each employee)
- employee benefits including costs for vacation, parental, family, medical, or sick leave; allowance for dismissal or separation; payments required for the provision of group health care benefits including insurance premiums; and payment of any retirement benefits
- state/local taxes assessed on compensation of employees, and
- for a sole proprietor or independent contractor: wages, commissions, income, or net earnings from self-employment, capped at $100,000 on an annualized basis for each employee.
Secret #4 - What is the PPP's interest rate and term?
- The interest rate will be 0.50%
- The loan term will be two (2) years
Secret #5 - Is it true that I won't have to pay back my PPP loan?
That is correct under many circumstances. You would be eligible for loan forgiveness so long as the loan proceeds are used to cover payroll costs (as defined above) and most mortgage interest, rent, and utility costs over the eight (8) week period after the loan is made (up until 6/30/2020), and employee and compensation levels are maintained.
